Stress-testing is an important tool in developing a complete picture
of an institution's liquidity risk profile. What constitutes a good
stress test is, however, not universally clear. Practices still differ
widely, not only in the supervisory community, but also in the banking
industry. The Research Task Force's Workgroup on Liquidity
Stress-Testing was mandated to draft a survey on current practices,
identify gaps and - where possible - suggest ways forward.

This survey
has been written with the broader supervisory community in mind. The
Workgroup believes this would include a wide range of functions: for
example, micro-prudential line supervisors, staff of supervisory
institutions involved with liquidity stress tests, macroprudential
regulators and supervisors. Many of the findings are, however, also
relevant for risk managers in banks, given their role in measuring their
institution's liquidity risk profile and enforcing risk limits. The key
messages could also be helpful in future efforts to develop more
guidance with regard to liquidity stress-testing.

Hong Kong's decision to create a poverty line puts us in mind of John Cowperthwaite, financial secretary from 1961-71 and one of the chief architects of the territory's free-market system. Sir John famously refused to collect basic economic data on the grounds that statistics only increased the temptation for government to meddle. An arbitrary measure of poverty is a perfect example, since it encourages policies that will undermine the social mobility and economic growth needed to reduce poverty.

Hong Kong's new poverty line was set at one half the median income, which means that 20% of the population is considered poor. The most obvious objection to such a cut-off is that the number of poor will remain relatively stable regardless of their real conditions. If the government gives out money, this will tend to raise the median income and hence the poverty line, necessitating yet more handouts.

Then there's the problem of using income to measure poverty, since many residents, especially the elderly, live on their savings. Those without savings may rely on help from family members. So while poverty is a real problem in Hong Kong that deserves attention, this poverty line is a crude attempt to quantify it.

Nevertheless, many politicians in both the pro-Beijing and pro-democracy camps are eager to expand Hong Kong's small welfare state, and they will no doubt use this new tool to lobby for more benefits. Also, in 2011 a minimum wage came into effect, with the reassurance that it was set low enough to minimize job losses. Now the poverty line is a talking point for raising the minimum wage.

Those in favor of tempering Hong Kong's capitalism with socialist institutions common in the West often argue that they will do less harm since the territory's population has a strong work ethic and the government budget is in surplus. They little consider that these are the results of Sir John's laissez faire framework.

Ironically, the Chinese Communist Party appreciates Hong Kong's capitalist strengths more than local leaders. In the 1990s, after the last British Governor Chris Patten increased social welfare spending 88% in five years, Chinese diplomats warned that "Eurosocialist" policies were like "putting people on a F1 racing car which runs so fast it crashes and kills all its passengers."

Zhou Nan, Beijing's representative in the territory, complained, "The price of the future Special Administrative Region government being forced to live beyond its means would be budgetary imbalance, tax hikes, reduced financial market liquidity which will result in eroded foreign investors' confidence." Sir John couldn't have said it better himself.

President Obama likes to boast that he has repaired U.S. alliances supposedly frayed and battered by the Bush Administration. He should try using that line with our former allies in Saudi Arabia.

As the Journal's Ellen Knickmeyer has reported from Riyadh in recent weeks, the Kingdom is no longer making any secret of its disgust with the Administration's policy drift in the Middle East. Last month, Prince Turki al Faisal, the former Saudi ambassador in Washington, offered his view on the deal Washington struck with Moscow over Syria's chemical weapons.

"The current charade of international control over Bashar's chemical arsenal," the Prince told a London audience, "would be funny if it were not so blatantly perfidious, and designed not only to give Mr. Obama an opportunity to back down, but also to help Assad butcher his people." It's a rare occasion when a Saudi royal has the moral standing to lecture an American President, but this was one of them.

On Monday, Ms. Knickmeyer reported that Saudi intelligence chief Prince Bandar has decided to downgrade ties with the CIA in training Syrian rebels, preferring instead to work with the French and Jordanians. It's a rare day, too, when those two countries make for better security partners than the U.S. But even French Socialists are made of sterner stuff than this Administration.

Bandar's decision means the Saudis will not be inclined to bow any longer to U.S. demands to limit the arms they provide the rebels, including surface-to-air missiles that could potentially be used by terrorists to bring down civilian planes. The Saudis have also told the U.S. they will no longer favor U.S. defense contractors in future arms deals—no minor matter coming from a country that in 2011 bought $33.4 billion of American weapons.

Riyadh's dismay has been building for some time. In the aborted build-up to a U.S. strike on Syria, the Saudis asked the U.S. to beef up its naval presence in the Persian Gulf against a potential Iranian counter-strike, only to be told the U.S. didn't have the ships. In last year's foreign policy debate with Mitt Romney, Mr. Obama was nonchalant about America's shrinking Navy, but this is one of the consequences of our diminishing military footprint: U.S. security guarantees are no longer credible.

Then there is Iran. Even more than Israel, the Saudis have been pressing the Administration to strike Iran's nuclear targets while there's still time. Now Riyadh is realizing that Mr. Obama's diplomacy is a journey with no destination, that there are no real red lines, and that any foreign adversary can call his bluff. Nobody should be surprised if the Saudis conclude they need nukes of their own—probably purchased from Pakistan—as pre-emptive deterrence against the inevitability of a nuclear Tehran.

The Saudis are hardly the first U.S. ally to be burned by an American President more eager to court enemies than reassure friends. The Poles and Czechs found that out when Mr. Obama withdrew ballistic-missile defense sites from their country in 2009 as a way of appeasing the Russians.

The Syrian people have learned the hard way that Mr. Obama does not mean what he says about punishing the use of chemical weapons or supplying moderate rebel factions with promised military equipment. And the Israelis are gradually realizing that their self-advertised "best friend" in the White House will jump into any diplomatic foxhole rather than act in time to stop an Iranian bomb.

Now the Saudis have figured it out, too, and at least they're not afraid to say it publicly. "They [the Americans] are going to be upset—and we can live with that," Saudi security analyst Mustafa Alani told Ms. Knickmeyer last month. "We are learning from our enemies now how to treat the United States."